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April 12, 2011

Define confidential information to avoid ambiguity

There are a number of ways that contract packaging service buyers and providers can keep confidential information private, and one of them is a nondisclosure agreement (NDA). These agreements are designed to preclude harmful disclosure of confidential information. A nondisclosure agreement is not one-size-fits-all; it requires an analysis of the business at issue and a strategy tailored to that business.

The following tips can go a long way to mapping out a strategy to protect confidential information.

• A typical NDA defines the scope of confidential information. Though the definition of confidential information seems obvious, it is an important consideration that should be tailored to the business at hand. For example, a food company that has particular recipes or formulas imperative to the quality of its products has a much different scope than a company whose information relates to a particular marketing strategy. Any ambiguity in the definition of confidential information may be construed against the company and, therefore, a key piece of information could be excluded if not specifically included in the definition. Similarly, exclusions from the definition of confidential information also should be addressed.

• The disclosure period or limitation period is important. Some information requires protection longer than other information. The recipe for Coca-Cola is something the company would argue against ever disclosing. A new package for an established product may require a shorter time frame within which the confidential information should be protected because the “cat is out of the bag” as soon as the product is launched. The disclosure period is important because the NDA must be reasonable to be enforceable. Narrowly tailoring a disclosure period can impart reasonableness to the scope of the NDA, thereby enhancing the likelihood of successful enforcement.

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• Permissible disclosure should be described. The NDA should identify exactly what the permitted uses for the confidential information are, both in terms of use and disclosure. An employee, for example, must be able to use the confidential information to perform his or her job functions but should be precluded from using the confidential information for any other purpose. Is the employee permitted to download the information onto a personal thumbdrive or computer? Defining permissible conduct will reduce the risk of an employee exploiting confidential information (and increase the likelihood of proving what was done was impermissible). If the employee is not permitted to download information on a thumbdrive, proof of downloading alone may demonstrate to a court that the employee breached the terms of the NDA and may go a long way to demonstrating improper use.

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• An attorney’s fees provision is significant leverage and shouldn’t be overlooked. Often, attorneys’ fees become a significant consideration in the decision to enforce an NDA. Attorneys’ fees can rack up quickly if litigation is necessary to enforce the NDA to preclude use and disclosure of confidential information. The NDA should provide that if a party seeks to enforce the NDA, it can recover its costs and attorneys’ fees for doing so. This simple provision can be a big “miss” that costs a company hundreds of thousands of dollars and a missed opportunity for leverage, if left out of the NDA.

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